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Is there a housing crisis in Europe?

What does the housing crisis in Europe look like and how does it compare to the UK? Contributing to a new report by Housing Europe, we take a look at public spending on housing allowances and building new homes in Europe and the UK.

Gerald Koessl is a Research Officer at National Housing Federation

17 October 2017

For some time now, we've known that housing in many parts of the UK is increasingly unaffordable. Today’s publication of the Housing Europe report, ‘The State of Housing in the EU’, shows that the British public is not alone in facing such a crisis.

What does the housing crisis in Europe look like and how does it compare to the UK?

2016 saw the highest annual growth rate in house prices in the EU since 2009. Peaks and troughs are more pronounced in the UK, where we had both a bigger drop during the financial crisis and a faster increase in the previous year.

Crucially, house prices in the EU and the UK are growing faster than incomes, making it harder to buy a home. Housing costs have also become an increasing burden for renters, particularly private renters, a group that’s growing in the UK and across the EU.

Figure 1. Annual rate of house price change in the EU and the UK
Source: Eurostat, House price index

Eurostat provides an indicator for households struggling with housing costs. A household is considered to be overburdened by housing costs if they spend more than 40% of their disposable income on housing.

In the EU, the proportion of households overburdened by housing costs has grown from 9.9% in 2009 to 11.3% in 2015 – an additional 3 million households. This is even higher in the UK at 12.4% – about 1 in 8 of all households.

The growing affordability problem for low-income households is also highlighted in the report. The proportion of EU citizens with incomes below 60% of national median incomes who are overburdened by housing costs has grown from 34.5% in 2009 to 39.3% in 2015. In absolute figures, this represents an additional 3.7 million low-income households in just six years. The proportion in the UK is 40%, roughly in line with the EU average, but this represents a stark increase from 26% in 2012 (Data for the UK is only available from 2012 due to a data break in this year).

Figure 2. Percent of households overburdened by housing costs in the EU and the UK
Source: Eurostat, housing cost overburden rates (data for the UK only available from 2012)

It’s predominantly people living in cities – particularly capital cities – who are facing rising housing costs. The higher the degree of urbanisation, the more likely it is that a household is struggling with affordability. While 9.1% of European households in rural environments are overburdened, it’s 13.4% in cities. Around three quarters of the EU population live in urban areas, and pressures on urban housing markets will only intensify as more people move to cities for jobs and education etc.

Yet, despite this increased housing need, many countries have decreased their budgets for building new affordable homes.

Across all EU countries, funding for building new homes has fallen from 54.5bn Euros in 2009 to 27.5bn Euros in 2015. A growing number of struggling households require financial assistance through housing allowance, so more money is being spent on housing allowances than on building homes. This shift is even more pronounced in the UK, where, in 2015, 85% of total expenditure on housing went towards housing benefit and only 15% towards building new homes.

Figure 3. Public expenditure on housing: proportions spent on housing development and housing allowances, 2009 to 2015
Source: Eurostat, General government expenditure by function (COFOG)

Affordable housing is not only important for helping to house a population. It provides other public benefits, including improvements to health, economic security, energy, transport, education and employment. Housing associations have a long history of providing a wide range of services, including employment, skills and health initiatives. That’s why building and maintaining social homes is not only a way to provide much-needed homes, but to provide positive economic and social benefits for our communities.